Dollar shrugs off Fed hit, Brexit pains help gains

NEW YORK (Reuters) - The U.S. dollar rebounded against a basket of currencies on Thursday, recouping all its losses from the previous session as Brexit-related worries hurt sterling and the euro, helping to take the focus off the surprisingly dovish Federal Reserve.

The dollar index, which measures the greenback against six major currencies, was up 0.75 percent to 96.476.

The index fell 0.6 percent on Wednesday, closing below its 200-day moving average for the first time in more than 10 months, after the Fed jolted markets by abandoning all plans to raise rates this year.

On Thursday, the pound plunged on growing fears of a "no-deal" Brexit should British lawmakers hold firm in their rejection of British Prime Minister Theresa May's EU divorce deal.

European Union leaders will offer on Thursday to delay Brexit until May 22 at the latest - but only if May can turn around massive parliamentary opposition and win lawmakers' backing next week for her withdrawal plan.

"I think the focus shifted back to Brexit and the potential downside that a “no deal” would create," said Minh Trang, senior currency trader at California's Silicon Valley Bank.

"The greenback and the higher yielding curve is still attractive when compared to the G10," he said.

The euro was 0.48 percent lower against the greenback. Sterling was down nearly 1 percent and came within a whisker of slipping below $1.30.

On Thursday, the Bank of England kept interest rates steady.

"The reality is the economy of no country can really handle further increments to borrowing costs, and we may see more scrutiny over cuts than hikes from now on," said Juan Perez, senior currency trader at Tempus Inc in Washington.

Despite the rebound on Thursday, Perez said he expects the dollar to remain under pressure for the rest of 2019.

FX strategists at Morgan Stanley also see the Fed's move as spelling trouble for the dollar.

"We see the FOMC decision as a meaningfully USD-negative signal and anticipate further declines," they wrote in a client note.

Norway's central bank raised its main interest rate on Thursday, as expected, and said its next hike may come earlier then previously planned, boosting the crown currency against the euro and the dollar.

The Swiss franc was down slightly against the greenback after Swiss National Bank Chairman Thomas Jordan said increasing global economic risks meant the central bank would stick to its ultra-loose monetary policy for the foreseeable future.

(Reporting by Saqib Iqbal Ahmed; Editing by Tom Brown)

By Saqib Iqbal Ahmed